Fed officials used July meeting to discuss increasing interest rates earlier
than planned

US Federal Reserve officials discussed whether to increase interest rates earlier than previously planned, raising expectations that it could take action before next year.

The central bank has kept America’s short-term interest rates near zero since the end of 2008, as it battled to fuel growth after the financial crisis. It had signalled that it would wait until the middle of 2015 to increase interest rates, until it felt comfortable that the world’s largest economy had regained strength and weaned itself off other fiscal stimulus measures.

However, the Federal Open Markets Committee used its July meeting to discuss whether it should take action sooner, according to minutes released on Wednesday.

Officials weighed up improvements in America’s labour market, including the unemployment rate which has fallen much faster than expected, and asked whether the time was right to start tightening credit. They ultimately decided to wait for more evidence, but the discussions heightened expectations that they will move before next summer.

"Many participants noted that if convergence toward the [Fed's] objectives occurred more quickly than expected, it might become appropriate to begin removing monetary policy accommodation sooner than they currently anticipated," the minutes said.

"Most participants indicated that any change in their expectations for the appropriate timing of the first increase in the federal funds rate would depend on further information on the trajectories of economic activity, the labour market, and inflation.”

Committee members also discussed the importance of communicating their intentions clearly to the markets – an issue that will be very important over the next few days at Jackson Hole, Wyoming, where Fed chairman Janet Yellen is due to speak at the annual economics conference which takes place there.

“The committee should provide additional information to the public regarding the details of normalisation well before most participants anticipate the first steps in reducing policy accommodation to become appropriate,” the FOMC minutes said.

They also “stressed the importance of communicating a clear plan while at the same time noting the importance of maintaining flexibility so that adjustments to the normalisation approach could be made as the situation changed and in light of experience.”